Wall Street Beat: Market rally, tablet excitement lifts IT

Central bank moves to calm markets and vendor emphasis on uplifting tablet news helps cheer tech

Tech stocks rose along with major indexes this week as central banks came up with a plan to ease market fears about European sovereign debt, and as key IT players including Microsoft, Intel, and Cisco held conferences for developers, users and analysts.

Tech stocks have been depressed through most of the third quarter, weighed down by fear that a sputtering recovery would short-circuit IT spending. The possibility that one or more countries in Europe would default on debt obligations, disrupting the financial sector throughout the world, compounded those concerns.

"The odds of a double-dip U.S. recession continue to rise and are raising fear that sales prospects will deteriorate further," said Bryan Lewis, research vice president at Gartner in a report on the semiconductor market this week. "Gartner is closely monitoring IT and consumer sales trends for any significant signs of weakness."

In a separate report, IDC noted that PC sales have been tepid. PC sales rose just 2.7 percent in the second quarter of 2011 from the year-earlier period, compared to a forecast of 2.9 percent growth. For the full year, IDC expects worldwide PC shipments to increase by just 2.8 percent, a downward revision from the previous forecast of 4.2 percent.

"In these tight economic times, and with new and competing products for consumers and businesses to spend money on, PC growth will remain slow in the next couple quarter," said Loren Loverde, vice president of IDC's Worldwide Consumer Trackers.

This week, however, a consensus among central banks on how to deal with the sovereign debt crisis emerged, calming fears of market watchers. On Thursday the U.S. Federal Reserve along with the European Central Bank and three other central banks agreed to supply loans to financial institutions with exposure to Greek debt.

The news sparked a market rally, lifting shares of IT companies. Computer companies on the Nasdaq closed Thursday flat for the year. Just Wednesday, Nasdaq computer stocks were down 1.67 percent for the year, and earlier in the quarter they had been down about 5 percent for the year.

The rally continued Friday morning, with Nasdaq computer stocks up 9.24 percent for the day by midday.

Conferences held this week by major IT vendors also played a part in boosting confidence.

For example, Cisco on Tuesday presented a plan to focus on core businesses and streamline management, about a month after reporting that profit dropped by a third, year over year, in its latest fiscal quarter. CEO John Chambers also put to rest rumors that he would be stepping down.

The company has cut its long-held view that it could generate 12 percent to 17 percent annual sales increases, adjusting expectations to 7 percent to 8 percent. Nevertheless, the management shakeup and new focus appears to have assuaged investors.

Elsewhere this week, vendors jumped on the tablet bandwagon. Even as growth in the PC market slows, tablets are taking off. Gartner said this week that global semiconductor sales have slowed, with the market due to decline slightly from last year.

"Three key factors are shaping the short-term outlook: excess inventory, manufacturing overcapacity and slowing demand due to economic weakness," said Gartner's Lewis.

However, increasing user takeup of smartphones and tablets are making NAND flash memory and data processing ASICs the fastest-growing areas for components in 2011, with about a 20 percent increase in sales, Gartner said.

At its BUILD conference for developers, Microsoft pitched Windows 8, making a big play for the tablet market with the upcoming OS' ability to run on ARM processors. ARM processors dominate the tablet market.

Intel, at its Intel Developers Forum, also made a push for the tablet market, showing off devices running on its Atom chip.

Tech investors took heart, boosting vendor share prices. Microsoft shares, closing at US$25.74 last Friday, rose throughout the week, jumping again Friday morning by $0.14 to $27.13. Cisco shares rose from $15.82 at the end of last week to $16.62 Friday morning, while Intel shares increased from $19.70 to $21.84 over the same period.

The rising tide has not lifted all boats, however, as Research in Motion shares plunged Friday, dropping $5.52 to $24.32 in late morning trading. RIM, reporting earnings Thursday, said shipments of its PlayBook tablet declined by half during its second quarter, as overall revenue dropped. Revenue was $4.2 billion, down 10 percent year-over-year, it reported.

RIM was blasted at the launch of the PlayBook for coming out with a first version that did not have crucial features such as enterprise email built in to the device itself. Though the tablet market is providing a respite from bad news in the hardware market, current market conditions, in which IT buyers are cautious, apparently do not leave much room for vendor error.

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Marc Ferranti

IDG News Service
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